ICO and the Emerging Decentralization of Crowdfunding

In quiet corners of the internet, where mainstream finance dare not tread, a trend is emerging: the ICO (Initial Coin Offering).

This is an emergent term, with no formally recognised definition as yet. Though an ICO is coming to mean any venture, platform, enterprise or endeavour that issues a specific token for a specific purpose.

The token could have its own underlying chain, as was the case with Ethereum. Increasingly however, tokens are meta and issued on an existing blockchain infrastructure.

Many projects are choosing Ethereum as that infrastructure.

With its complete scripting, Ethereum is the perfect platform for ICOs. Complex relationships, logic, contingencies and outcomes are all at the developer’s fingertips.

The barriers to entry have been lowered. This can be seen as the next evolution of crowdfunding. It’s a further step towards decentralisation, as imagined under the kickstarter model.

The marketplace for ICOs is heating up. Unique opportunities are presenting themselves.

Traders are making profits. We will likely see entire listings just for app-coins and ICOs in the near future.

Shapeshift itself lists just under 40 coins. Now some 25% of those are app-coins. Many of these app-coins are from successful dapps, built and launched on Ethereum.

SingularDTV, DigixDAO and Augur all held successful ICO campaigns on Ethereum recently. They now enjoy support for their tokens on leading exchanges like Shapeshift.

Jason Colby was on the original Ethereum team. Now on the vDice team, he notes of the emerging trend:

“We launched and run vDice as one of the only live, working Ethereum Dapps. It’s great to be able to use this technology for something like an ICO. Now we have an extra option to fund ongoing development.”

Launched this June, vDice is already approaching 10,000 bets. vDice is billed as the world’s first fully decentralised gambling game. Instead of server, it relies on Oracle infrastructure to process bets.

Live, working products doing ICO on the Ethereum blockchain are rare. But should be understood as the gold standard of ICO.

Simply, live, working dapps remove a lot of the guesswork. If the product is live it can be seen that the team is serious. Also, Ethereum, as the other billion dollar coin, is big enough to support real growth for successful Dapps on its platform.

Issues of jurisdiction and regulation will also emerge, over time. Of this Jason notes:

“We’ve narrowed it down to a handful of jurisdictions that we will likely work with. All the logic is on the network. It has no location. There is no server architecture. It’s another level of abstraction that Bitcoin never had to deal with, just because Ethereum is fully programmable.”

This does raise interesting questions. Already jurisdictions like Zug in Switzerland are stepping up to support these trends.

Such proactive moves by regulators benefit both the Ethereum ecosystem, and jurisdictions at the head of these growth industries.

Jason notes:

“Because we have a product that is already doing well, people see we are a serious team. They are responding well to that. The positive feedback has been great.”

Ultimately vDice is looking to capitalize on the success of early Bitcoin blockchain games like SatoshiDICE; started in Bitcoin’s early days, it went on to process millions in transactions.

A number of projects have raised significant sums of money, using Ethereum. This is without a working product or prototype.

For example, proposed gambling platform FirstBlood raised over $5 million and sold out their tokens in minutes, based simply on an idea.

The token then went on to trade immediately after its issuance at 2x the ICO price. So, traders were also profiting. Investors in these projects are often doing well. Ethereum, and its ETH native token itself, is the perfect example of the gains these ICO tokens can make.

This is analogous to a decentralized kickstarter. In this model finance is ‘crowdfunded’ to realise a product. This is ‘kickstarter’ on a blockchain.

These ICOs also provide a way for early investors and believers to profit directly.

Oculus Rift, for example, was very publicly criticized after it sold for billions to Facebook. Oculus raised $2.4 million from Kickstarter. But none of the early kickstarter investors benefited from the huge sale to Facebook.

With the Ethereum ICO model, there is no such risk. Instead, investors in projects like vDice, Augur and Digix receive a token issued on the Ethereum blockchain. It prevents this.

The ICO model first gained recognition and legitimacy with Ethereum. It makes sense that it would grow in popularity on the same platform.

While Ethereum is proving popular for ICOs, it’s not only next generation blockchain platform being used. Rootstock, Counterparty and Waves are also emerging.

Wings is an upcoming ICO on the Waves platform. Wings aims to do DAO technology properly, providing a decentralized platform for creating and managing DAOs.

They are hoping to make DAOs commercially viable again, after the recent trouble with The DAO earlier this year. It remains to be seen whether people are ready to buy into the DAO hype again.

The market always finds a use for things.

While it is fine to speculate as to useful Ethereum and Blockchain 2.0 applications, the market is already sending clear signals. In the new decentralised economy, crowdfunding is emerging.